|EcommerceBytes-NewsFlash, Number 2973 - January 07, 2013 - ISSN 1539-5065 3 of 5|
In the ecommerce space, no two companies compete more directly and fiercely than eBay and Amazon. Both are enormous in scale and have established themselves as virtually indispensable platforms for thousands of small sellers.
But the two companies take a noticeably different approach to executive compensation. Both eBay and Amazon weight their executive compensation heavily toward stock, closely tying leaders' income with the performance of the company. But by measure of base salary, one company's chiefs make several times more than their counterparts at the other firm.
Based on an analysis of the companies' financial reports, EcommerceBytes has compiled a comparison of the executive payouts at eBay and Amazon.
eBayeBay explains that it structures its executive compensation through what it calls the eBay Incentive Plan (eIP), which seeks to align salaries with the performance of the company, drawing primarily on non-GAAP net income as a basis. Under the eIP program, executives don't receive financial-performance bonuses unless the company meets a baseline level of revenue and net income. In 2011, eBay hit both thresholds, and funded the financial-performance segment of the eIP payouts at 150 percent of its target. Financial performance accounts for three-quarters of the eIP program. The remaining 25 percent of the program is determined by individual performance.
eBay also said that it had set multi-year goals regarding customer satisfaction and employee engagement, which could have yielded additional bonuses, but that in 2011 the company failed to reach the benchmark in either category.
For CEO John Donahoe, his combined salary, eIP payout and assorted stock holdings amounted to compensation of $16,456,528, a 33 percent increase over 2010, when Donahoe netted a little more than $12.3 million.
eBay's compensation committee cited strong revenue growth, the global expansion of PayPal and the added workload Donahoe took on when he assumed the role of president of marketplaces on an interim basis following the departure of Lorrie Norrington.
Of Dohanoe's compensation, the largest single component was performance-based restricted stock units, which accounted for 37 percent of his income. Stock options, at 23 percent, were the second largest individual component, followed by time-based restricted stock units, at 17 percent. Among other named officers, as a cohort, time-based restricted stock units accounted for 54 percent of their compensation.
Salary accounted for just 5 percent of Donahoe's overall compensation, and a meager 6 percent among other named executives.
Donahoe netted a base salary of $950,000, up 2.7 percent from 2010. CFO Bob Swan received a base salary of $800,000, Chief Technology Officer Mark Carges $585,000.
Among the new additions to the company, GSI President Christopher Saridakis stepped in with a base salary of $600,000, and Devin Wenig joined the company in September 2011 as president of marketplaces, starting at a base salary of $750,000.
Including the additional stock, incentives and other compensation, Swan collected $7.7 million in 2011, a 21 percent increase from the previous year. Carges saw his compensation swell to $9.7 million from $2.9 million in 2010, a 232 percent increase.
eBay explains that its compensation committee considers a variety of factors in determining salary levels for top executives, including an assessment of compensation rates at rival companies with which eBay competes for talent. In 2011, the committee identified its "peer group" as being comprised of Adobe, Amazon, American Express, Apple, Capital One, Charles Schwab, Cisco, Dell, Electronic Arts, Google, Intel, Intuit, MasterCard, Microsoft, Symantec, Visa and Yahoo.
AmazonLike eBay, Amazon focuses its executive compensation on company stock, but with one notable exception. CEO Jeff Bezos, who as of February 2012 owned 19.5 percent of Amazon's outstanding stock, does not take any of his compensation in the form of stock.
"Due to Mr. Bezos' substantial stock ownership (approximately 19%), he believes he is appropriately incentivized and his interests are appropriately aligned with shareholders' interests. Mr. Bezos has never received any stock-based compensation from Amazon.com," the company said in a proxy statement.
Amazon reported Bezos' stock holdings as nearly 88 million shares out of the company's 451.6 million outstanding shares. All directors and executives, a total of 19 people including Bezos, held 88.6 million shares, or 19.6 percent of outstanding stock, as of February.
For executives other than Bezos, Amazon explains:
"The primary component of a named executive officer's total compensation is stock-based compensation in order to closely tie total compensation to long-term shareholder value. Accordingly, named executive officers receive sizeable stock-based awards at the time of hire and are also eligible for stock-based awards on a periodic basis."
Similar to eBay, Amazon describes a survey that its Leadership Development and Compensation Committee conducted to help set executive compensation levels, drawing on data from a pool of retail and tech companies, including AOL, Best Buy, Cisco, eBay, Gap, Google, IBM, Intel, Intuit, Microsoft, Oracle, Target and Yahoo.
But the difference in base salaries between the two companies is striking. Bezos, for instance, held his salary steady in 2011 at $81,840, compared with nearly $1 million for Donahoe. However, combined with the $1.6 million that "represents the approximate aggregate incremental cost to Amazon.com (for) security arrangements for Mr. Bezos in addition to security arrangements provided at business facilities and for business travel," Bezos was credited with $1,681,840 in compensation in 2011.
Tom Szkutak, senior vice president and CFO, took a base salary of $160,000 in 2011, identical to his salary in 2010 and 2009. Diego Piacentini, senior vice president of the international consumer business, took a base salary of $175,000, also unchanged from the previous two years.
Jeffrey Wilke, Amazon's senior vice president of the consumer business, received a base salary of $165,000, a modest increase of $5,000 over the previous two years. H. Brian Valentine, senior vice president of Amazon's ecommerce platform, took a base salary of $160,000.
"Consistent with our belief that total compensation should be tied to long-term shareholder value, base salaries for named executive officers are designed to provide a minimum level of cash compensation and to be significantly less than those paid by similarly situated companies," Amazon said.
About the author:
Kenneth Corbin is a freelance writer based in Washington, D.C. He has written on politics, technology and other subjects since 2007, most recently as the Washington correspondent for InternetNews.com, covering Congress, the White House, the FCC and other regulatory affairs. He can be found on LinkedIn here.
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